Call for State assistance:

Valachchenai paper mill, a profit-making venture soon

By Ranil Wijayapala

Competent Authority, Mangala Senerath with two factory officers.

A group of schoolchildren on a visit to the factory.

Front view of the factory building.

As a country which had adopted various economic policies since its independence there were times when Sri Lanka gave local industries a prime place in its economy by adopting import substitution policies and discouraging imports. That gave a boost to local industries and most state owned enterprises, a place in the economy and promoted its products.

However, the introduction of the open economy in 1978 created a huge impact on these industries and they had to compete with imported products and also with private sector industries which received huge investments from multinational companies.

Unable to withstand this situation many state owned local industries collapsed creating a huge burden to successive Governments and some of the industries based in the Northern and the Eastern province suffered heavily due to the almost three decades long war against terrorism that ended in May 2009.

'Deadly wounds'

The Valachchenai paper mill in the Batticaloa district was also one such state enterprise that sustained 'deadly wounds' and was in need of oxygen by the time the Eastern province was liberated from the clutches of the LTTE.

Since then, many attempts were made to salvage the paper mill which is considered a treasure for the people in the Batticaloa district and also to the country. Since the Embilipitiya paper mill was closed, the Valachchenai paper mill was a vital asset supplying the requirements of the country along with other small scale paper factories.

As a state enterprise that comes under the Ministry of State Resources and Enterprises Development, the Government appointed Mangala Senerath as Competent Authority of the National Paper Company to salvage this asset and turn it into a profit-making venture.

According to him, the National Paper Company, with its demoralised staff and worn out machines which could not be operated continuously even for three to four hours, was producing only 1.2 metric tonnes of paper at the time he took over.

"When I first visited the Valaichchenai Paper Mills after assuming office in April 2012, it looked ghostly with damaged buildings and the area covered by shrub jungle. Employees there were in uncertainty as they had not been paid their salaries and other payments including welfare facilities."

But it had all the resources to carry out smooth production but the machines had needed to be repaired and renovated to ensure smooth functioning of the factory, he said.

Steam boiler

"Therefore with great difficulty we managed to repair the boiler since the steam boiler is the heart of the mill and without steam paper couldn't be dried. Before the renovation it broke down nearly every four to five hours and only one machine either paper machine or board machine could be run. But after renovation the machines could work continuously," he said.

"We can now run both machines at the same time as the boiler is working at optimum pressure and steam temperatures are high compared to the recent past," he said.

After overcoming these obstacles the Valachchenai paper mill increased production from 35 to 319 metric tonnes per month.

"When I took over the factory, sales were as low as Rs. 3.4 million per month. Therefore, I appointed a youthful team to market, distribute and manage prime suppliers and increased the sales target to Rs.16 million per month. Our sales target for this year is estimated at between Rs.45.5 million and 65 million per month. To achieve this we have to produce 700 mt to 1,000 mt per month and I am ready to take up the challenge with my employees who are keen to achieve and share their efficiency," he said.

Export of waste paper

"I have taken several measures to motivate the factory people by paying their salaries, overtime payments, other allowance and medical reimbursements on time and the employees who were waiting to leave their jobs through a Voluntary Retirement Scheme were motivated to work and increase production capacity," he said.

But the Valachchenai paper mill which has come a long way after starting from scratch is facing severe challenges to increase production. One is the lack of waste paper to increase production.

"Since 10,000 metric tonnes of waste paper is exported to India every month we face a severe difficulty in finding the waste paper required for our production. Of the waste paper exported we need at least 3,000 metric tonnes to run the mill as we have increased production from 1.2 mt per day to 27 mt per day," he said.

"We are confident that we could manufacture 800 mt per month if we get financial support. To achieve that target we need a buffer stock of waste paper and it is a must," he said.

"Apart from us there are a few small scale paper related manufacturers and they also need another 3,000 metric tonnes of waste paper per month. Therefore, we have to retain approximately 6,000 metric tonnes of waste paper without it being exported to India, to keep our operations going smoothly," he said.

Reports indicate that in 2012 the private sector had exported approximately 309,674 metric tonnes of waste paper at the rate of Rs. 10.20 per kilo.

Financial support

"This shows we have enough waste paper in our country to manufacture 200,000 mt per anum. So why doesn't the private sector which exports waste paper at the above rate, help save our nation paper mill by selling the waste paper to us?" he queried.

"I wish to thank the Government for issuing the circular requesting all Government Departments and Organisations to send their waste paper to us and also to purchase their requirement of paper from the National Paper Company. At the same time we expect some sort of action from the Government to impose restrictions on the export of waste paper to support the local industry," he said.

Apart from that the Valachchenai paper mill is also in need of financial support basically to boost production by repairing machines which are in need of spares and renovation and other logistical facilities.

"I got to know that Rs. 1,700 million was required to renovate this factory according to proposals submitted by the previous management. But I will guarantee that if I am given Rs.100 million as loan repayable in 60 monthly instalments it will suffice to renovate the factory and run it in an efficient manner," he said.

Negative attitude

However, he said it is sad to note though some state financial institutions which fund private sector entrepreneurs lavishly have a negative attitude towards providing financial assistance to this paper mill owned by the state.

"It is sad to note that most of the institutions and officials are unaware of the potential of this mill and what kind of profit could be earned to support to the economy. When I discussed with some high officials a few of them commended our proposals, but when we try to carry out the process, junior officers comment that high officials don't have much power therefore they cannot accept the proposals submitted by us for funding. I cannot understand why they can't give financial assistance to us," he said.

"Right now we have overcome the biggest challenge by repairing the boiler and getting 9bar of steam pressure to run the board manufacturing machine and the paper manufacturing machine after repairs. In two to three months we can manufacture 45 mt per day and can easily achieve 1,250 mt per month which is not a hard task," he said.

"Apart from producing paper we have been supplying purified water to the Passikudah Tourist Zone and work is in progress to add a new hotel with 1,700 rooms. We therefore need to upgrade the filter plant to supply better quality to help the tourism industry and that will also become an income generator for this mill," he said.

"Therefore, I personally request financial institutions to look at this situation positively without thinking of the mill's position in the past and help to run this as a profit making entity as this is a hundred percent government owned entity", he said.

Quality products

"We need to increase our capacity because private merchants import over 150,00 mt finish paper per month in various grades. Sri Lanka needs 225 metric tonnes of case cover per month which is only nine days production at our mill and we are the producers of high quality case cover compared to all other products available in the country. Likewise, we can produce other essential paper requirements also without fail because we are the biggest producer and we have German Voith Machines which are considered the world's leading machines in the industry", he said.

"We have brought out good quality 450 gsm chipboard and 300 gsm file covers.

So I would like to suggest that if the government can increase import tax for these two products, then we can supply all the file covers and chipboard the country needs. As per statistics we need 225 mt of file covers and 200 mt chipboard per month.

If we have raw material and chemicals we can manufacture this amount in 16 days, and our mill too will run as a profit making entity.

"The people in the market are ready to sell our products as they have accepted that our products are of the best quality in the market and we have a good path ahead if the barriers are cleared for us," he said.

"After much hard work the Valachchenai Paper Mill can be converted into a profit-making institution. If President Mahinda Rajapaksa, Economic Development Minister Basil Rajapaksa and State Resources and Enterprises Development Minister Dayasritha Tissera, give their blessings, I guarantee that within three months I will convert the biggest government manufacturing mill in the East coast to a profit making entity," he said.